A non-stock and non-profit corporation which is an Association of universal and commercial banks operating in the Philippines

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Mitchell Parrish
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2 A non-stock and non-profit corporation which is an Association of universal and commercial banks operating in the Philippines Entered into Shareholders Agreement with LGUGC in trust for 14 investor banks Owns 46.6% of LGUGC stocks

3 A state-owned development financial institution with the objective of providing banking services that cater to medium and long-term needs of agricultural and industrial enterprises with emphasis on small- and medium-scale industries Owns 46.9% of LGUGC stocks

4 VISION *To be the recognized private sector link in public-private partnerships for local development financing MISSIONS *Advocate for reforms that will mobilize resources of the private sector toward financing local development projects; *Continue to advocate for policy reforms for local government unit (LGU) debts, whether bond floatation or direct loans, and *Instill value of good governance to enhance the borrower s enterprise management and creditworthiness, especially local government and utility companies

5 Incorporated in March 1998 with 51% ownership by BAP member banks, stockholdings of which are held in trust by BAP, and 49% DBP ownership Intentionally registered as a private corporation to be more flexible in responding to market demands Initially opened only to Local Government Units (LGUs) Essentially launched the Municipal Bond Market in the Philippines Opened to Electric Cooperatives (ECs) in 2004 upon agreement with World Bank and Republic of the Philippines (RoP) to manage the Electric Cooperative System Loss Reduction Project-Partial Credit Guarantee (ECPCG) Program

6 Opened to Renewable Energy Projects in 2006 upon agreement with UNDP and RoP to manage the Capacity Building to Remove Barriers to Renewable Energy Development-Loan Guarantee Fund (CBRED-LGF), now renamed Deparment of Energy-Loan Guarantee Fund (DOE-LGF) Opened to Water Districts (WDs) in 2008 upon the invitation of USAID- Philippine Water Revolving Fund Support Program Recently named Program Manager by the European Union, World Bank and DOE for the Access to Sustainable Energy Programme (ASEP) for photovoltaic mainstreaming and rural network solar projects

7 CREDIT GUARANTEE GUARANTEE PROGRAM MANAGEMENT CREDIT RATING RELATIONSHIP MANAGEMENT WITH FINANCIAL INSTITUTIONS COLLABORATION WITH NATIONALGOVERNMENT

/ Credit Rating AAA BORROWER Financial Institutions Provides up to 50% co-guarantee

8 Guarantees FIs against borrower default Pays FIs in case of default according to original amortization schedule Provides loans Underwrites bond issues Due Diligence / Credit Rating AAA BORROWER Financial Institutions Provides up to 50% co-guarantee for water projects Pays loans / bond amortization Calls on guarantee if borrower defaults

Program Implementation Agreement Guarantee Reserve Escrow

9 ROP Grant Agreement US$12MM Republic of the Philippines World Bank DOF and DOE Escrow Agent As Implementing Agency of GEF Guarantee Program Implementation Agreement Guarantee Reserve Escrow Agreement Project Agreement & LGUGC Grant Agreement Guarantee Program Manager

6MM United Nations Development Programme Guarantee Program Implementation

10 Grant Provider Implementing Agency ROP Grant Agreement Republic of the Philippines Global Environment Facility US$1.6MM United Nations Development Programme Guarantee Program Implementation Agreement DOF and DOE Guarantee Reserve Escrow Agreement ESCROW AGENT Guarantee Program Manager Project Agreement & LGUGC Grant Agreement

11 BORROWER TYPE LGU GUARANTEE CORPORATION As of December 31, 2015 NOS. OF AGGREGATE LOAN PROJECTS AMOUNT (US$ MM) AGGREGATE GUARANTEED AMOUNT (US$ MM) LEVERAGE RATIO vs. LGUGC CAPITAL (x) Local Government Units - Bonds Local Government Units - Direct Loans 4.88 Local Government Units - AGL Water Districts Electric Cooperatives Medium and Large Ent TOTAL * Leverage ratio computed using LGUGC paid-up capital of US$5MM and aggregate loan P46.92=US$1

12 BORROWER TYPE NOS. OF PROJECTS AGGREGATE LOAN AMOUNT (US$ MM) AGGREGATE GUARANTEED AMOUNT (US$ MM) LEVERAGE RATIO vs. PROGRAM FUND (x) ECPCG CBRED-LGF

13 Lender REGULAR ECPCG CBRED-LGF Any LGUGC partner financial institution (PFI) Any LGUGC PFI Any LGUGC PFI Loan Term Cash flow-based Up to 10 years Up to 10 years Grace Period Single Guarantee Limit Guarantee Coverage Depending on project requirement 25% of LGUGC Net Worth Up to 85% of the debt service to the PFI; up to 80% for ECs Guarantee Fee Risk-based Ranges from 0.25% to 2% per annum At least 1 year grace period, but not to exceed the PFI loan term USD2.5 Million Up to 80% of the loan principal amount and 3 months interests, subject to LGUGC interest rate cap Maximum 2 years grace period, but not to exceed the PFI loan term PhP50 Million Up to 85% of the principal amortization To be determined based on PFI request and Borrower Risk Rating results 0.25% per annum 0.25 per annum

14 LGUs : Provinces, cities or municipalities Minimum investment grade rating WDs : Minimum investment grade rating MLEs : Private corporations not included in the Top 1,000 Above-average borrower risk rating score ECPCG : EC cooperatives registered with NEA or CDA Above-average borrower risk rating score DOE-LGF : LGUs/NGOs/POs/ECs/MLEs RETPs Microfinance Industries (MFIs)

15 LGUs Agri-business and food production Development of industrial estates Hospitals and healthcare centers Power plants and distribution systems Public markets Public transport facilities and government housing development Schools and daycare centers Slaughterhouses Communication systems Renewable energy technology projects Other revenue generating projects Non-revenue generating basic services projects WDs Water source development and protection Treatment and Level III distribution systems Sanitation System upgrading and reduction of non-revenue water (NRW) Bulk water supply Rehabilitation and expansion Support facilities

16 MLEs ECs DOE-LGF Toll, roads and bridges Tourism promotion and development projects Water source development, supply, sewage and sanitation systems Solid waste management Contracts (incl. BOT and JV) with LGUs, GOCCs and government agencies for infrastructure projects Contracts with Top 1000 Corporations for infrastructure projects RE projects Other projects acceptable to LGUGC Board Rehabilitation and capacity upgrades (incl. purchase of second-hand subtransmission facility) to improve the reliability, efficiency and safety of supply system and the quality of service to customers Removal of supply system constraints Purchase of necessary hardware, software, motor vehicles, tools and equipment to improve employee productivity and customer service efficiency Hydropower (pico-hydro, micro-hydro, mini-hydro) Biomass-based system (biogas, direct burning for power and non-power applications) Wind (power and nonpower) Solar (photovoltaic systems and solar water heaters)

17 *United States Agency for International Development (USAID) Development Credit Authority (DCA): Co-Guarantee Agreement for Water Projects *World Bank Global Environment Facility Electric Cooperative System Loss Reduction Project Partial Credit Guarantee Program (ECPCG): Program Management Agreement *Department of Energy Loan Guarantee Fund (DOE-LGF) for Renewable Energy Proponents: Program Management *European Union (EU)/Global Partnership on Output-Based Aid (GPOBA)/World Bank Access to Sustainable Energy Programme: Program Management Agreement

18 * Various Technical Assistance (TA) from USAID for the ff: Design and Development of internal LGU Credit Screening and Rating System (LCSRS), Computerization of LCSRS, LCSRS database update, Review and recommendation of the LGUGC guarantee policies and procedures, Design of Credit Rating for Water District (CRWD) System; and Development of LGUGC guarantee pricing guide mechanism. * TA from Australian Aid through the Philippines-Australia Governance Facility for the improvement of LCSRS and design and computerization of LGUC Portfolio Monitoring and Management System

19 LGU Guarantee Corporation Unit 2801, 28/F, Antel Corporate Centre 121 Valero St., Salcedo Village, Makati City Tel: (02) to 68 Fax: (02) Website:

20 Banco de Oro Unibank, Inc Bank of the Philippine Islands Development Bank of the Philippines EastWest Banking Corporation Philippine Veterans Bank Rizal Commercial Banking Corporation Robinsons Banking Corporation Security Bank Corporation Land Bank of the Philippines Union Bank of the Philippines Metropolitan Bank & Trust Company United Coconut Planters Bank Philippine National Bank

21 LGU CREDIT SCREENING AND RATING SYSTEM (LCSRS) CREDIT SCREENING AND RATING MODEL: STAGES A CREDIT WORTHINESS CRITERIA Management Management Risk Credit Rating Operating Performance Financial Condition Operating Performance and Financial Condition Risks Development Capacity and Socio-Economic Endowment Development and Endowment Risk Tendency for Efficient Debt Repayment Political Risk

22 LCSRS RATING METHODOLOGY Credit Screening Credit Rating Credit Groups Preliminary Credit Rating Final Credit Rating A 1.A Aaa Risk of Unilateral Restriction of Debt Payments 1 2 Development Risk Economic and Political Endowment Risk B C D Operating Financial 1.B 1.C 1.D 2.A 2.B 2.C 2.D Management Aa A Ba B C TENDENCY FOR DEBT REPAYMENT DEVELOPMENT AND ENDOWMENT RISK OPERATING AND FINANCIAL CONDITION RISK MANAGEMENT RISK

23 CREDIT RATING FOR WATER DISRTRICT (CRWD) Credit rating Financial risk Operating risk Regulatory risk Management risk Economic risk

24 Categories AA to B have modifiers + and - suffixed BB Inadequate Safety B High Risk C Substantial Risk D Default AAA Highest Safety AA High Safety A Adequate Safety BBB Moderate Safety Investment Grade cut off

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LGUGC Facts Brief History Vision & Mission

LGUGC Facts Brief History Vision & Mission LGUGC Facts Brief History Incorporated in March 1998 with 51% ownership by BAP member banks, and 49% DBP ownership Initially opened only to Local Government Units (LGUs) Essentially launched the Municipal